On 16 November 2017, the Air Pollution Control Board of Virginia’s Department of Environmental Quality unanimously approved the proposed Regulation for Emissions Trading. This followed an Executive Directive of Governor McAuliffe from May 2017, which directed the Department of Environmental Quality to draft a regulation to limit CO2 emissions from the power sector that would be of similar stringency to similar measures in other states. It also allows for the use of market-based instruments, eyeing a link with the Regional Greenhouse Gas Initiative (RGGI), a multi-state carbon market of nine North-eastern and Mid-Atlantic States.

The draft regulation proposes joining RGGI by 2020 and adopting RGGI’s major design elements, including aligning the state with RGGI’s annual reduction factor for the emissions cap. Virginia’s cap would start at around 33-34 MtCO2e (short tons) and decline annually by around three percent to 23.1-23.8 MtCO2e (short tons) by 2030. With the total RGGI cap set at about 78 MtCO2e (short tons) for 2020, the addition of Virginia would increase the carbon market by almost 50%.

While all other RGGI states auction their allowances, given political challenges under the current chambers, Virginia proposes to allocate allowances freely but with the requirement of consignment auctions. Under a consignment auction, regulated entities that receive allowances for free are required to sell those allowances at auction, but receive the revenues from these sales in return. While the revenue implications are the same for regulated entities as under free allocation, the auction is useful for establishing a visible carbon price signal. RGGI Inc., a non-profit corporation that partly implements the RGGI carbon market, would conduct the consignment auctions.Published on 8 January 2018, the proposed regulation is now open for a 60 day public comment period, during which time the exact emissions cap for Virginia will also be decided upon.

RGGI Member States reacted positively to the likely compatibility of Virginia’s proposal with RGGI, emphasizing the proposal’s strong alignment with changes suggested in RGGI’s 2016 Program Review. Specifically, this review recommended a 30% reduction between 2020 and 2030 as well as the establishment of an Emissions Containment Reserve (ECR) that reduces the cap in the face of low prices.

An announcement by Governor McAuliffe and Governor-Elect Northam also raises the possibility of joining RGGI via the passage of legislation rather than through regulation and a link to RGGI. The announcement notes that Virginia will move forward regardless, with the regulation to be implemented when a legislative effort does not succeed.